More foreclosures in our future?

In 2005 there were 1.27 million foreclosures and now we are looking at 7 million properties behind in mortgages and poised for foreclosure.

No end on the horizon

No end on the horizon

No doubt we have seen what we all think is an enormous amount of foreclosures hit the market.  The question now is, what does the future look like, how much more will we see?  I read an article today that indicates we are going to see a second wave of foreclosures.  In 2005 there were 1.27 million foreclosures and now we are looking at 7 million properties behind in mortgages and poised for foreclosure.

What effect will this have on our current market and chance for any type of recovery?  There will be a tremendous negative affect on the market.  Real Estate values will decline even further as more and more homes are foreclosed on.  If we know that this will be the deepening negative effect, is there anything that can be done to ward off these foreclosures?  Other then the owner of the property finding the money to pay all back payments and bring the mortgage current, or someone (in most cases, the government) bailing them out, I see no way out for these properties in the current configuration of loans and mortgages.

It does take a while for a property to be foreclosed on.  And in addition it takes quite a sum of money to finalize a foreclosing process. Calculating all extra expenses and charges involved may lead to a smarter approach of the process. One solution could be bringing all loans back to zero interest, especially since the Federal Reserve sets out the funds at 0-0.25%.  Problem is that the banks who receive this money from the Feds, make their income out of the span between obtaining and loaning. Lenders are overwhelmed with delinquent loans but most of those delinquencies can be written off towards not collected interest in the amount loaned. And here is some space for modifications or refinance.

On the other hand there are many owners who just simply don’t qualify today for a refinance or loan modification.¬†Once they are behind in their mortgages then their credit has taken a hit and in many cases the banks¬†will not touch them.¬† ¬†As more and more properties are foreclosed on, the value of existing properties fall even lower.¬† When an owner applies for any bank assistance and an appraisal is done, the low value of the property does not qualify the property itself for a new loan.¬† There are many owners who have tried to refinance just to be informed that not only does the property not qualify, but the bank is calling the entire note due because it is now on record that the property appraisal is lower then the amount¬†owed, it’s an absolute¬† catch 22 for the owner.

Banks, especially the smaller local and regional ones, are bracing now for more residential foreclosures and for commercial properties to start slipping into foreclosure.¬† There are many retail establishments counting on a good holiday shopping season this year to help bail them out. I think it’s pie in the sky.¬† It will be interesting to see how the first quarter of 2010 shapes up.¬† What the unemployment numbers will be and how the overall¬†real estate market¬†is doing.¬† I wish I had better news for you, but if you want the facts rather then the spinned-up BS coming from Wall Street, Washington and the big media; this is it.¬† I’ll keep you posted.

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